Paul’s Credit Tidbits – Credit Counseling vs Credit Repair
Credit Counseling vs Credit Repair
As a professional in the credit restoration industry, I often run into situation where clients have either been through credit counseling or are wondering which one they should use – repair or counseling.
I am especially glad when they ask before they make a decision, as it can have a huge affect on their home buying goals, their credit and their stress level.
First, I think it is important to know your rights when you re considering working on your credit and your debts.
I got this information from an article by Selene Garcia that she wrote for Guaranteed Rate, and I though she laid it out nicely.
You have the right to:
• Know what your credit report contains (e.g. accounts, payment information etc.).
• Ask for your credit score. You will have to pay for this service.
• Dispute any inaccurate information reported.
• Request the credit bureaus correct and update any inaccurate or dated information. The credit agencies must comply, typically, within 30 days.
• Credit privacy. What this means is, any employers (or potential employers) must give the agencies your written consent in order to access your credit report.
• Limit the number of pre-screened offers from credit card and insurance companies. To do so you may call 888-5-OPTOUT (888-567-8688). Or visit OptoutPrescreen on the web
Now lets take a brief look at the two choices – Credit Counseling or Credit Repair.
Credit Counseling Agencies
Credit counseling agencies tend to serve two basic functions.
They educate consumers about ways to handle their finances and manage their debt, and commonly they negotiate lower interest rates on debts or settle or consolidate debts. They generally do this as the mediator between the consumer and the various creditors involved.
One of the things that I think is important to know is that in order for a consumer counseling agency to negotiate lower interest rates or consolidate debts for you, they will have to do a lot of damage to your credit first.
I say it this way because most banks and credit card companies will not even talk to anyone about consolidating or reducing the interest rate etc until the account is at least three months past due. Unless you are already three or more months behind on your payments on those accounts, your credit is about to get hammered.
Many clients I have worked with, did not realize that they were making payments to the consumer counseling agency for a few months and no payments were being made on any accounts. They also had no idea the terrible affect it would have on their credit and how long it would keep them from being able to qualify for a mortgage.
Here are some great points that Selene made in her article for Guaranteed Rate regarding credit counseling. They are taken from her article:
Are you a candidate?
You are a good candidate for credit counseling if you are drowning in debt and are unable to pay off the debt let alone afford to make the minimum monthly payments. Additionally if you have been contemplating the idea of a bankruptcy, a debt consolidation might be a good option.
How do I know if it’s a scam?
Reputable credit counseling organizations are typically non-for-profit. If you cannot afford to pay for services a true non-for-profit will accept a donation of any amount.
Steer clear of organizations that charge for educational information.
The organization should offer a range of services such as: debt consolidation, budget counseling and savings and debt management classes. If the organization is trying to sell the debt consolidation service it’s a sign something is not right.
Do you research and confirm the organization is licensed in your state. Also, it never hurts to ask about your counselor’s qualifications (e.g., training certificates).
If the employees of the organization are paid based on the fee you pay (e.g., commission) then go somewhere else.
Credit Repair Companies
Generally Credit repair companies work to get false and inaccurate information removed from your credit reports. Many will claim to be able to get anything negative removed, but you will want to steer clear of those. You will usually be disappointed.
The majority of credit repair companies out there do nothing but dispute negative items on your credit. Some dispute a few items each month on one bureau at a time and others are a little more aggressive.
There are also some companies that are a kind of hybrid of consumer counseling and credit repair. Those companies include education and guidance for the consumer and also help with settlement efforts etc. I would call that credit restoration.
Now, just to be clear and open, I work with what I would term a credit restoration company. We take this path for a very important reason – there are meaningful benefits to the consumer of both, and we care about the consumer and want to empower them. Feel free to check us out, at the corporate web site, or my personal blog site, but this is not a sales pitch. Whether or not you ever come to us, this is information I give to the people I care most about.
Anyway, I honestly do not know of many other restoration companies. I am familiar with a ton of credit repair companies.
I think there are some things to be cautious about when considering credit help.
Up Front Fees?
If they charge an up front fee, stay away. That is a bad sign, not to mention against federal statutes that govern the industry. A reputable company will not charge until a set of services has been completed, usually after 15 days, for initial efforts, and then after 30 days there after, which is a typical disputing cycle.
Guarantees of removal of particular negatives?
Again, this can be a warning sign. Federal guidelines forbid such promises for a reason. Now, if they give you a money back guarantee for their service, that is different. Not many will do that, because there are too many elements out of their control. That guarantee has no affect on if the items will get deleted or not, so such a guarantee has little or nothing to do with the effectiveness of the service.
What ever company you choose, I encourage you do your research and check to see if they are rated high with the BBB and check to see how many unresolved complaints they have. If they have large pages of complaints on the web, that can be a sign of companies you want to avoid.
Loan Ready Credit?
This is important to consider. If you are working on your credit to try to get qualified for a mortgage, then you want to avoid raw disputers. Those companies will dispute until the cows come home or until they are successful. But most will not do any work to remove the remaining evidence of the disputing.
The reason this is so important, is that in 2009 the government made a law that basically said, if you want to use any secondary market money – i.e. Freddie Mac, Fannie Mae, VA, FHA etc, then you could not have any comments on your credit report mentioning disputes. Long story short, dispute comments can artificially affect your scores, so the government doesn’t want them there. (that affect on scores is why many companies will try to tempt you to use their services, by saying your scores will change in less than 30 days)
So if you go to a company that is just a disputer, then you will likely not have a credit report that a lender can use. You will have to either get the dispute comments removed yourself or get help doing it, which kind of defeats the purpose of going to the company in the first place.
Can I do it myself?
That brings me to a point that many will be in a hurry to tell you, and often times in a disparaging way, as if to mean you should not get professional help. There is nothing that a credit repair company can do that you can not do yourself for free. It is important to know, but at the same time strikes me as silly to have to say.
There is noting in the world, that you go to any company for, that you can not do yourself and likely for free as well. Every service person in the entire world that you go to is just a person like you. If they can do it, so can you.
However, I say that a little tongue in cheek. Just because you can do something yourself, doesn’t mean you should, even if it is your expertise. How many of you think it would be a good idea for a world renown brain surgeon to conduct brain surgery on himself or herself? Or how many dentists drill their own teeth? He or she wouldn’t, they would go to another expert.
The point here is you can work on your own car, do your own taxes, represent yourself in a court of law, make your own hamburger or pizza, or any other thing that another person can do.
There reason you don’t, is time and expertise – time and money to develop the expertise to address something and the the time to complete the task. You pay people for that convenience and for the difference in the results you will realize.
Whatever company you choose, I encourage you do your research and check to see if they are rate high with the BBB and check to see how many unresolved complaints they have.
Please share his on your social sites and Feel free to let me know if you have any questions or comments and I hope you have a wonderfully blessed day!